Scratching the Surface

The Louisiana Lottery Corporation offers dreams and dedicated funding -- but who are the real winners?

Jeremy Alford is a freelance journalist based in
Baton Rouge. He can be reached at
jeremy@jeremyalford.com.

If you won the lottery on May 10, you have me to thank. I'm the guy who picked the winning digits on your ticket. Actually, I pressed a red button, which told a computer it was time to stop running through thousands of numbers per second. And the process was probably more exciting for you than it was for me. Balloons didn't drop from the ceiling and a state-appointed auditor clocked my every move.

Every drawing is open to the public -- but no audience cheered me on. In her 13 years as the official drawing manager, Sue Bonacorso says, only a few people have stopped by to catch the show. But still, from a small, glass-encased room in the Baton Rouge headquarters of the Louisiana Lottery Corporation, my right index finger put some jingle in someone's pocket. Not mine, mind you. My numbers didn't hit. If they had, someone else would be writing this article.

Prior to 1998, the Louisiana Lottery Corporation employed former beauty queens to dish the digits during live television broadcasts. Attired in shimmering dresses, the royalty would stand by some type of air-driven machine that sent numbered ping-pong balls tumbling over each other. Then they would announce the numbers in real time on WWL-TV and other stations around the state.

That pageantry, however, has been replaced by the quiet technology of automated drawings, which no one ever sees. It's no wonder lotto enthusiasts probably think the process has more jazz than it actually does. Every night is usually a quiet one; the drawing manager and auditor sometimes mull over crossword puzzles until the time comes to turn on a computer. To say it's an exciting method, like you see in the commercials, is a grand misconception -- a wily subterfuge of sorts that critics will tell you permeates nearly every corner of the lottery's operations.

Even from the very beginning, when it was nothing more than a proposed constitutional amendment, the Louisiana Lottery was operating under a thin veil. The state Legislature sold it to voters in 1990 as a way to fund public education and, in trusting response, the polls revealed overwhelming support to the tune of 69 percent. At the time, it was one of the highest margins recorded by any state to implement a lottery since 1964. With that action, and others that were to follow, legalized gambling placed its footprint on Louisiana soil and the state became an official bookie for those with an itch.

From the time of its inception, it took more than a decade before voters started to criticize how the state allocated lottery proceeds. Clearly, it wasn't going toward public education as promised. Lawmakers realized their cover was blown in 2003 and they ushered in another constitutional amendment dedicating lottery earnings -- partly -- to public education. The transfer represents 35 percent of the lottery's total revenues, and many consider it a mere drop in the bucket. While seemingly earmarked for school children, a portion is also channeled into problem-gambling programs.

In recent years, opponents have found even more to rail against in the lottery's spending plan. Half of all monies are returned to players in prizes, but a substantial amount goes uncollected annually and the Legislature has yet to lay hands on it. An additional 10 percent goes toward operating and promoting the lottery. While it includes millions of dollars in local salaries, it also funnels major contracts to out-of-state vendors, thus diverting work away from Louisiana businesses.

Of course, people also benefit from the lottery. Just ask Jerry Berggren of Kenner. He won $48 million from PowerBall last year. Or ask Susan Clayton of Baton Rouge. She's employed as the lottery's product director and is one of a few hundred people who owe their jobs to scratch-offs and lotto drawings. From an economic development perspective, some retailers have been able to double their revenues just by adding lotto tickets to their inventory. On the state level, Louisiana receives at least $100 million annually as the only stakeholder of the quasi-corporate agency. It is a unique framework -- although an official department, the lottery must operate as a business because it sells a product. Nationally, the Louisiana Lottery Corp. is the envy of other states. The last decade of legislative audits has revealed nothing worth rehashing and the lottery consistently ranks high in studies gauging efficiency in financial transfers.

Nonetheless, some critics contend the lottery, with its $300 million of annual revenues, is ripe for reform. They say additional funding can be channeled into public education, Louisiana businesses can be offered more work, and operational monies can be better spent. If you simply scratch the surface and recognize the areas in need of improvement, critics argue, the lottery could become the universal jackpot it was intended to be.

It Pays to Play

The skinny: Fifty cents of every dollar in the lottery's budget goes back to winning players who try their luck on scratch-offs and draw tickets.

The rub: An average $86 million in prizes goes uncollected each year by players, but lawmakers have yet to claim it for the state's general fund. Instead, they have allowed the lottery to use it to increase gambling odds.

As you walk through different parts of the lottery's headquarters, you can see photographs of various winners holding oversized checks, like Jerry Blades of Sterlington, who won $75,000 from a Casino Action scratch-off last year. While he appears to be a sure thing in the photograph, Blades might want to tread carefully with a check that's larger than his head. 'Those big checks you see around here are not transferable,' says Kimberly Chopin, the lottery's public information officer. 'But people love to keep them anyway.'

More than $12 million is awarded every month by the lottery, so that warning is offered quite frequently. When totaled over the course of year, that sum nears $144 million, which accounts for roughly half of the lottery's overall budget. That makes game winners the largest beneficiary of the lottery -- whether they're from Louisiana or not.

And as attractive as those huge checks are, there are hundreds of winners every year who don't find the time to pick up their cash prizes at local retailers and regional headquarters. Winning scratch-offs expire after 90 days, while drawing tickets have a shelf life of 180 days. After that, the cash goes back into the lottery's budget, amounting to an average $86 million annually. State law requires that these monies be used for prize promotions and to increase the odds on scratch-off games.

Policymakers have increasingly come to question this process, especially because it involves a discretionary purchase that is fueled partly by impulse and addiction. Some want the cash returned to taxpayers via the state's general fund. Lottery officials argue that using uncollected prizes to jack up odds is a smart business move, and doing anything else with it would be devastating.

Randy Davis, the lottery's president, says that if the unclaimed prize fund were dissolved in Louisiana, overall ticket sales would decline by nearly 64 percent and less money would go to the state. (Davis supports this position by citing a study conducted by the Atlanta-based Scientific Games -- a company that currently holds a printing contract with the Louisiana Lottery.)

'With the instant product, players are very sensitive to the game,' Davis says. 'The people that buy these games are looking for regular feedback. If the prize structure doesn't provide this, they won't play it.'

There's also practical evidence, Davis adds. When Texas tried decreasing their lottery's prize percentages by 5 percent in 1997, sales dropped by 23 percent in one year. Inversely, the Florida Lottery saw sales nearly double when they increased odds three years ago. When Louisiana did the same in 1997, sales increased from $97 million to $123 million in two years.

Not everyone buys this argument. State Rep. Steve Scalise, a Metairie Republican, filed legislation last year to use the lottery's uncollected prizes to help further fund public education. It was initially referred to the budget-drafting House Appropriations Committee, but was never granted a hearing. Some Capitol insiders contend the panel knew better than to oppose the lottery's board of directors, which was packed at the time with some well-connected politicos. But Scalise says he was simply out-fiscaled -- meaning he was unable to counter the lottery's financial data. He says he needed more time to fight his battle.

There are a few arguments Scalise could have used. For instance, the Louisiana Lottery has been able to exceed sales goals nearly every year although they have one of the lowest prize structures in the nation -- a fact players are obviously not fretting over. By returning only 50 percent of their proceeds to gamblers, Louisiana ranks 43rd out the 45 states that presently operate a lottery. In comparison, Massachusetts has some of the greatest odds in the nation and returns up to 72 percent to their winners.

Scalise says he hasn't abandoned the idea of diverting the monies. 'Clearly, I think we could be using some of that,' he says. 'I still think people who play the lotto now will still play it, and there won't be a huge difference in the money coming to the state. The concept can still be brought up and I might do it next year, maybe.'

For the Kids

The skinny: Thirty-five cents of every dollar goes to the state treasury. State officials originally told voters this would go toward funding public education.

The rub: State law was only recently rewritten to dedicate this money to education. And while it has contributed to some growth, it represents only a small portion of the overall picture. A share of these monies also goes to problem gambling.

If there were ever an issue that sent public support of the lottery to the gutter, it would have to be funding for public education. Two years ago the state Legislature stuck a Band-Aid on the snafu by dedicating the agency's yearly transfers to the Minimum Foundation Program, a fund that supports public education through a complex formula. The amendment, however, did not alter a lesser-known state law that requires $500,000 be snipped off the top of each transfer for the Office of Addictive Disorders.

Barry Erwin, CEO of Council for a Better Louisiana, a nonprofit organization that monitors the activities of state government, says one of the only reasons the Legislature offered the amendment was due to criticism from people who rightly claimed they were duped. 'It became an issue of trust in government,' Erwin says. 'At the end of the day, they dedicated the money to education to silence the critics.'

Lottery president Davis agrees: 'One of the biggest misconceptions the public ever had was that lottery proceeds were going to education since day one. And the reality of it is it doesn't really increase spending for education.'

The lottery has transferred $1.6 billion to the state treasury since it opened for business in 1992, contributing more than $121 million last year alone. While the MFP receives a large portion of that money, there were times in the past when the MFP received only a tiny amount or nothing at all from the lottery's transfers. In fact, prior to the passing of the dedication amendment, it seemed everyone was getting a piece of the pie. For instance, the first year the lottery transferred funds to the state, the Office of State Parks received $3 million, the State Museum got $91,000 and the Office of Film and Video caught $118,000. The following year, proceeds were broken up among Louisiana's colleges, with Louisiana State University in Baton Rouge receiving $2 million -- the largest sum allotted.

By 1994, treasury records indicate that the MFP finally started receiving all of the lottery transfer. Four years later, the Office of Addictive Disorders started getting its slice. Erwin says this may have put some people at ease, but his group was not fond of the decision. Dedications tie down important revenues that might be needed for other areas during a dire budget year, and the money itself has a small impact on the $2.6 billion MFP.

'From CABL's perspective, it doesn't really matter that much because $100 million in the MFP doesn't do anything,' Erwin says. 'It wasn't on top of anything else. It just replaced other money.'

Officials with the state Department of Education don't necessarily disagree, but they contend one point is being missed. Marilyn Langley, the deputy superintendent for management and finance, says the MFP has increased by $837.7 million since the lottery was incorporated and its contributions represent 14 percent of this growth.

As to whether $500,000 annually from the lottery is enough to address related gambling problems, there is anecdotal evidence that all of the proceeds generated by ticket sales wouldn't even come close. According to a 2000 study by the LSU Medical School in Shreveport, the cost of addiction, law enforcement and related crimes far exceed the tax revenues coming from all forms of legalized gambling, including the lottery.

But other data shows lottery problems are far outweighed by those created by riverboat casinos and video poker. Tom Dumas, a program manager for the Office of Addictive Disorders, says only 13 percent of the calls received by the state's problem gambling hotline during the last two quarters of 2004 were related to the Louisiana Lottery.

While there's no consistent data available for what percentage of lottery sales are derived from addicted players, officials say they stay focused on the problem and are dedicated to making a difference. 'I guess it's kind of like any other business where people might suffer as a result of the product,' Davis says. 'Do we think about it? Yes. All the time.'

Keeping It In-house

The skinny: Ten cents of every dollar is used to operate and promote the lottery.

The rub: While a substantial employee base has been created in Louisiana, many of the larger vendors contracting with the lottery are from outside the state.

The lottery's art and marketing department are the folks who write the commercials, design the billboards and give promotional materials that little something extra. If you prod them enough, you might hear a few of the scratch-off ticket ideas that never made it past the water cooler. The head of production recalls a fishing-themed ticket that was rejected: 'You Bet Your Bass.' The graphics manager is still chuckling over something involving a Dalmatian and a fire hydrant.

Those pitches were likely rejected because the lottery is very careful about what it puts into public circulation, Chopin says. But they do like to keep it light. Last year they brought in Jimmie 'J.J.' Walker of Good Times fame to cut some TV spots on how to play Cash Quest. 'It was weird seeing him that old,' Chopin says shaking her head and laughing. Then without warning: 'Dy-no-mite!'

Walker received a talent fee of $22,000 for the gig. Chopin says amounts vary depending on the performer's popularity.

Chopin calls the Jimmie Walker spot a perfect example of how the lottery strives for entertainment value. Lottery officials say their marketing goal is not to denigrate the importance of a work ethic. Rather, they're just offering up something fun. 'We try to stay away from promises of wealth,' says Bonnie Botts, the lottery's vice-president of marketing. 'We're basically selling money here. We try to influence the public, so there are lines we do not cross.'

The '$1,000,000 Spectacular' is the lottery's most recent campaign. The corresponding scratch-offs are five times the size of a regular $1 scratch-off and are 10 times the cost. They're designed with dollar bills and coins that seemingly jump out at players. While the tickets appear to contradict the lottery's stated marketing goal, Botts says Louisiana Lottery steers away from shameless promotions seen in other states, such as spots that promise a new life through winnings or encourage people to quit their jobs.

The new promotional campaign is mostly black-and-white glitz, recalling Hollywood of the 1940s. Todd Newton, a former on-air personality from E! Entertainment Television, serves as the spokesperson. Bob Eubanks -- yes, the host of The Newlywed Game -- was considered for the gig. 'But he was too old,' Botts remarks.

A typical scratch-off marketing campaign like this costs roughly $413,000, including billboards, television, radio, print, production and point-of-sale materials.

Another way the lottery advertises is through special events, Chopin says. About $370,000 was spent last year on sponsorships for cultural events like the Crawfish Festival in Breaux Bridge and the annual Woman's Expo in Baton Rouge, and another $272,000 was doled out to underwrite sporting events such as those hosted by the New Orleans Hornets.

A significant portion of the lottery's operating budget -- more than $5 million -- is allocated in salaries for its 145 Louisiana employees. Chopin says there are also spin-off jobs from contracted services, which is an area some critics have latched onto with a vengeance. Many of the lottery's top vendors are from outside the state, although Chopin explains that many of these companies offer services that don't necessarily exist in Louisiana. The Atlanta-based Scientific Games began receiving 1.5 percent of all ticket sales for its printing contract in March. The Texas-based Oberthur Gaming Technologies likewise received $2 million last year for its printing services. The GTECH Corporation, which is headquartered in Rhode Island and has a small office in Port Allen, received $10 million last year for providing online terminals and gaming software.

Then there are the smaller contracts -- Best Software of California receives $5,000 annually for software maintenance, Pitney Bowles of Texas gets $900 a month for mailroom maintenance, and Cisco of Illinois received a $5,700 payment this year for router and firewall work.

A long list of Louisiana companies also contract services to the lottery, but the out-of-state work has stirred up a few critics. C.B. Forgotston, a New Orleans attorney and frequent gambling critic, has slammed such deals on his Web site. 'Economic development is about growing businesses in Louisiana,' Forgotston says. 'The lottery has been around for 15 years. The businesses making those millions of our money should have been home-grown by now.'

Michael Olivier, the state's economic development secretary, says there is an effort underway to link Louisiana businesses up with these contracts, and it may appear in the form of legislation next year. It's an electronic database where Louisiana businesses can log on and search for available contracts. 'A lot of Louisiana businesses claim they don't know these contracts are out there,' Olivier says. 'We would like to see a bill where municipalities, parishes and state government would submit any contracts they have to a central procurement system.'

Olivier warns, however, that any program that seeks to do this must be implemented carefully. There are several Louisiana businesses that currently provide services to other state governments, especially along the Gulf Coast, and anything that shuts out like vendors from other states could damage those existing relationships, he says.

Who Is the Real Winner?

The skinny: The state is the only consistent winner in this game, taking in an average $100 million annually.

The rub: It's not that big of a win.

He's not their place-kicker or their trainer or one of their official cheerleaders, but New Orleans native Bobby Wilson hit the road with the Saints in 2003 for the team's game against the Baltimore Ravens. 'For a die-hard Saints fan, it was pretty sweet,' Wilson says.

How did he get so lucky? By being a Louisiana Lottery retailer. It's just one of many perks Wilson says he has received as owner of Checkmate Services on Canal Street, a check-cashing business that also sells impulse buys like candy and magazines. Like other vendors around the state, he has seen a dramatic upswing in business as a result of scratch-offs and lottery drawings. When Wilson incorporated the lottery into the convenience store portion of his business four years ago, he says his revenues more than doubled in less than a month. 'It definitely has become one of the largest draws in my convenience-store business, especially as the jackpots grow,' Wilson says.

For starters, lottery retailers receive a 5 percent flat commission on all sales. Then they receive 1 percent of all winnings -- in most cases -- from tickets sold in their stores for lottery drawings. 'The largest I ever received at one time is $500,' Wilson says. 'But redeeming tickets on a regular basis is where the real hidden value is.' For all tickets under $600 that retailers cash for players, they can keep up to 2 percent of that prize, depending on the amount. 'You can make money just by cashing these tickets,' he says.

The lottery paid out $18.6 million to more than 2,800 Louisiana retailers last calendar year through these kinds of incentives, bonuses and commissions. It represents about 5 percent of its budget, but offers a consistent payoff. It's no wonder that Wilson considers Louisiana retailers the big winner from lottery. But not the only winner. 'The general public benefits just as much,' he adds.

Bonacorso, the lottery's drawing manager, had a similar yet unintentional assessment on the evening she allowed this reporter to pick the winning lotto numbers. After verifying the digits and faxing them to regional media outlets, Bonacorso visited the second-floor computer room and shuffled through a set of Pick 3 printouts. 'There were about 739 winners tonight,' she says, offering a statistical look at how many checking accounts can be improved through one drawing.

But before these winners could even celebrate, the taxman was already salivating -- the feds take 25 percent of everything more than $5,000 and the state gets 5 percent. Then there are those that get caught in the grasp of problem gambling, which far outweighs any financial payoff, critics say.

Davis, the lottery president, says he's not in a position to decide who the real winners are, but he adds the state would have to find the lottery's contributions to education elsewhere if it were not being charged to the treasury. However, he also admits that the 35 percent of lotto revenues kicked up to education is a meager offering.

When it comes down to all the various forms of legalized gambling in Louisiana that pay into the general fund, the lottery only contributes about 16 percent of total tax revenues, dwarfed by the offerings of riverboat casinos and video poker respectively. But it is a pretty dependable revenue stream.

Retailers, on the other hand, need willing consumers for their end of the deal to work out. Consumers need a lot of luck to call their purchases a success. And the public education system barely notices it gets funding at all.

Erwin, the good-government guru, says there's really only one true winner in this game of chance: the state of Louisiana, which receives a payoff every year. 'I would be hesitant to say education, so I guess it would have to be state government,' he says. 'The bottom line is the state has benefited to the tune of about $100 million a year. At the end of the day, that's money the state wouldn't have otherwise, regardless of where it came from.'

Bobby Wilson sells a lottery ticket to Marvin Brown at Checkmate Services on Canal Street. Four years ago, Wilson began selling lottery tickets at his business. He says his revenues more than doubled in less than a month.

'One of the biggest misconceptions the public ever had was that lottery proceeds were going to education since day one,' says Lottery president Randy Davis. 'And the reality of it is it doesn't really increase spending for education.'

State Rep. Steve Scalise filed legislation last year to use the lottery's uncollected prizes to help further fund public education. He was unsuccessful -- but says he might bring it up again next year.